What the Jones Act Has to Do With Your Car’s Gas Tank
(Bloomberg) -- The struggle by the energy industry and federal government to keep the Colonial Pipeline outage from causing widespread fuel shortages on the East Coast has renewed discussion about a 101-year-old law meant to protect the domestic shipping industry. The Jones Act usually gets attention in the wake of hurricanes, but the administration is now considering waiving the law to help fill the fuel supply gap left by the closed pipeline, which was taken out of service after a ransomware attack.
1. What is the Jones Act?
Passed in 1920, the law mandates that vessels moving between U.S. ports be built and registered in the country as well as crewed by Americans. The law sought to encourage U.S. shipbuilding, protect the country’s national security and grow its merchant marine force.
2. What’s its impact?
Supporters say the law has encouraged domestic construction of U.S. ships, including for highly specialized purposes, such as deploying wind turbines along the East Coast. But critics say the statute also has raised the cost of goods, since Jones Act-compliant ships are scarcer and more expensive than foreign carriers. On average, a 2011 U.S. study showed, the operating costs of American flag vessels are about 2.7 times higher than their foreign counterparts.
3. Who supports it?
The law enjoys support from some of the nation’s biggest shipbuilders and vessel owners as well as organized labor, including the Seafarers International Union. Jones Act supporters have made use of their significant political clout in Washington -- and their deep ties to lawmakers representing Gulf Coast states -- to battle efforts to create big new exceptions to the law.
4. Does it get waived in emergencies?
Presidents of both parties have waived the Jones Act after major storms. For instance, when Hurricanes Harvey and Irma hit the Gulf Coast within a month of each other, former President Donald Trump temporarily waived the statute to ensure gasoline could move without delay. Similar waivers were also granted after Hurricanes Katrina, Rita and Sandy. And the government has issued targeted waivers, such as when it allowed a Russian ice-class tanker to deliver fuel to Nome, Alaska, in 2011.
5. What’s the debate this time?
The pipeline outage has strained fuel supplies along the U.S. East Coast, prompting panic buying that caused some filling stations to run dry and forcing airports to carefully manage their own stockpiles. Jones Act waivers could allow foreign tankers to help supply the region by transporting fuel from Gulf Coast refineries to East Coast ports. However, U.S. shipping interests want to ensure Jones Act-compliant vessels are tapped first. The American Maritime Partnership has warned that targeted waivers should only be used “when there is a legitimate need and when such action does not reward those who would utilize foreign vessels to game the system at the expense of American jobs and national security.”
6. Would a waiver help now?
If the Colonial Pipeline is restarted within a week, analysts say foreign tankers wouldn’t arrive on the East Coast in time to do much good, since the journey from the Gulf to New York harbor would take an estimated six to seven days. The water-based alternatives include more foreign cargoes making a 10-to-14 day trek from Europe, and enlisting more Jones Act-compliant vessels. There are some 57 eligible U.S.-flagged tankers, according to data from the Maritime Administration, but some of those haul chemicals and others serve Alaska, so they’d be of little use in the current crisis. By one estimate, using a Jones Act-compliant tanker adds $5 per barrel to the cost of transporting oil.
7. Who would decide?
In this case, it is up to the Department of Homeland Security to decide whether waivers are “necessary in the interest of national defense,” a legal threshold for issuing them. The Maritime Administration also first must have determined that qualified vessels aren’t available to meet the need. Ultimately, though, it will be up to President Joe Biden. For any president, there are major political considerations in any decision involving the Jones Act. Biden, who has emphasized “Buy American” requirements and cultivated union support, may be under pressure to maintain existing U.S. shipping requirements.
The Reference Shelf
- A Congressional Research Service report on the Jones Act.
- A Jones Act explainer written by the law’s author, U.S. Senator Wesley Jones.
- A Tulane Maritime Law Journal paper on history, litigation and waivers of the Jones Act.
- A blog post by Charlie Papavizas of Winston & Strawn LLP on “What it takes to waive the Jones Act.”
- A GAO report on the effects of the Jones Act on Puerto Rico.
©2021 Bloomberg L.P.